10:36 PM, April 7, 2014

Detroit creditors are expected to file a flood of objections to the city's disclosure statement today, setting the stage for a clash with the city at an April 17 hearing over whether the document contains enough information about the city's restructuring plans. / Patricia Beck/DFP

What’s nextU.S. Bankruptcy Judge Steven Rhodes will hold a hearing April 17 to consider the objections to Detroit’s restructuring plan. The adequacy of the city’s disclosure statement will be judged on whether it contains enough information to enable a “hypothetical reasonable investor” to make an informed judgment about the debtor’s plan. Based on that criteria, Rhodes could: ■ Rule that emergency manager Kevyn Orr’s plan meets the criteria and allow the city to mail copies of it to 170,000 creditors to begin the voting process. ■ Rule that the plan is partially deficient and say the city must make revisions.

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Oakland and Macomb counties filed objections to Detroit’s bankruptcy restructuring documents in court Monday, exacerbating regional tension amid a dispute over future control of the city’s water department.

Making their first appearance in the case, Oakland and Macomb counties objected to the city’s proposals to either create a regional authority or hand over management of the department to a private company.

Separately, several major creditors — including the Detroit’s largest employee unions and financial giants that backed the city’s debt — objected to the restructuring documents, setting the stage for a clash in court over the pace of Detroit’s restructuring.

The city’s proposed treatment of its water department and the Detroit Institute of Arts were among the most contentious issues, with most major creditors objecting to both.

The city “does not have the unfettered right simply to transfer operations to anyone it chooses under any terms it prefers for its own economic advantage or otherwise,” Macomb County said in its objection.

Detroit emergency manager Kevyn Orr’s plan to bring the city out of bankruptcy “unfairly discriminates” among creditors and cannot be legally implemented by U.S. Bankruptcy Judge Steven Rhodes, Oakland County said in a similar document.

According to Oakland County, the city’s plan lacks important details, such as how much water and sewer rates will increase and how much must be spent to improve the infrastructure of the water and sewer system.

Monday was the deadline to file objections before an April 17 hearing over whether Orr’s document contains enough information about the city’s restructuring for creditors to votes on the plan over the next few months. At the hearing, Rhodes will consider arguments about Orr’s plan, also called a disclosure statement.

Several creditors, including the civil employee union AFSCME Council 25 and bond insurers Syncora and Assured Guaranty, questioned Detroit’s plans for the water and sewer department in their objections Monday.

Orr cannot put his plan to a vote of pensioners and other creditors unless Rhodes says the plan contains enough information to go to a vote. Orr wants the city to emerge from bankruptcy by Oct. 15.

If the city can convince Rhodes that the disclosure statement contains adequate and accurate information about the city’s debt-cutting proposal and post-bankruptcy restructuring plans, the city will win the right to send voting packets to creditors.

Water deal was nearly done

The heated legal battle between Detroit and suburban counties over water was nearly resolved in January. Macomb County, for the first time, disclosed in court documents Monday that the counties nearly reached an agreement with Detroit.

According to Macomb, the counties drafted a memorandum of understanding with Detroit to form a regional authority with a base lease payment of $47 million per year.

But that agreement fell apart by Feb. 3, when the city filed the first version of its restructuring plan in bankruptcy court. According to Macomb, the agreement reached in January collapsed because the city did not provide key documents to justify the $47-million annual lease payment.

Since then, the city has solicited bids from investors and private companies to manage or purchase the Detroit Water and Sewerage Department and said last week it had received notice that as many as 30 companies intended to submit initial offers of interest by the end of the day Monday. The city declined to say how many offers it actually received.

Notably, as of press time, Wayne County had not filed an objection to the city’s restructuring plan. Throughout the process, Wayne County Executive Robert Ficano has been more open to agreeing to Detroit’s terms than Oakland and Macomb officials.

Possible effect of the cuts

Several major creditors also officially objected to key elements of Detroit’s bankruptcy disclosure Monday statement.

Labor unions derided Orr’s proposed cuts to pensions and health care, while financial creditors protested the city’s attempt to spin off the DIA instead of selling artwork to pay off debt.

AFSCME said city workers “may be scraping by on rent, mortgage or insurance payments now, but may be forced into personal bankruptcy, unable to afford their home or critical drugs or worse, if pensions are cut.”

The union’s lawyer, Sharon Levine, also suggested in the court filing that Orr’s proposed cuts would lead to a “likely increase in crime and decaying social atmosphere.”

Orr has proposed cutting monthly pension checks 6% for police and fire retirees and 26% for general retirees if they agree to accept a deal in which the State of Michigan, nonprofit foundations and the DIA would inject $815 million to reduce cuts and preserve the museum.

Those cuts would increase to 14% and 34%, respectively, if the pensioners reject the deal. Under both scenarios, retirees would lose annual cost-of-living adjustment increases, although they could recover some of their pension cuts after a decade.

Orr has said it’s necessary to cut the city’s $18 billion in debt and liabilities to allow the city to reinvest in city services. He wants to invest $1.5 billion over 10 years on top of the usual city budget to improve public protection and remove blight.

Retirees and other creditors are weighing a fight to nudge the city to sell DIA artwork instead of allowing the museum to transfer to an independent nonprofit outside city control.

In a court filing Monday, a bond insurer called Financial Guaranty Insurance argued that the city has not properly accounted for the value of the DIA.

“Indeed, the value of the vast majority of the artwork housed at the DIA has been ignored,” it said. “How can creditors tell if they are getting a ‘bargain’ without understanding what they may be giving up and at what cost?”

Bond insurer Syncora, which said its request for more information from the city was “effectively dismissed,” said Detroit is either “stonewalling creditors” or displaying a lack of interest.

Orr’s reinvestment plans “resemble more of a wish-list ... than a targeted and calibrated municipal revitalization plan,” Syncora said.